Sifted - AI's $1tn opportunity

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All of the hype directed at AI companies like Mistral and OpenAI working on large language models has meant that a trillion-dollar corner of Europe’s economy being transformed by the tech has gone slightly under the radar. Today, Tim Smith digs into the wave of startups bringing "the biggest industry that no one's ever heard of" into the AI era. Scroll on for that.

Elsewhere today, we’re looking into layoffs and salary delays at Lithuanian fintech kevin, how Qonto is defying the fintech pullback and we sit down for brunch with the (usually media-shy) Point Nine VC Christopher Janz. 

— Kai Nicol-Schwarz, reporter

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AI is waking up the sleeping giant of Europe’s economy

AI is transforming an overlooked corner of Europe's economy — one that’s far more tangible and, so far, makes much more money than any chatbot or image generator.

Manufacturing accounts for roughly 20% of national GDP around the world, according to Sebastian Seutter, global head of manufacturing at Romanian tech’s golden child UiPath. In manufacturing powerhouses like Germany, the figure is closer to 35%.

UiPath IPO’d at a $35bn valuation in 2021, creating genuine value by helping clients like multinational manufacturing businesses automate their processes with AI.

And a new wave of companies are looking to join that party. 

London-based startup CloudNC, for example, is applying AI to what it calls “the biggest industry that no one's ever heard of” — the field of industrial machining, where raw pieces of metal are cut into components and parts that are used to make everything from phones, laptops and tractors.

It’s an industry that’s worth $1trn a year but, amazingly, 95% of the factories that make these parts are small, family-run operations with five employees or less, with machines that are run on software that looks so clunky it would make Steve Jobs turn in his grave.

It’s also an industry with a big labour crisis on the horizon. Many skilled workers are set to retire soon and there are dwindling numbers of young people enticed to join. CloudNC says its AI technology can speed up the very manual process of programming these machines, making factories more efficient and better able to meet global demand. 

Cofounder and CEO Theo Saville tells me his company isn’t using generative models, as they’re too unreliable and unpredictable for the high levels of accuracy required for making precision parts. Instead, he’s using “classical” AI techniques that were pioneered two decades ago but are now delivering real value due to advances in computing power.

It’s a cautionary tale for investors — to not get too swept up in the hype of cool image creators or seemingly intelligent chatbots — as entrepreneurs in less glamorous fields (who are making money) feel like they’re getting left on the sidelines as the generative AI roadshow keeps rolling.

— Tim Smith, news editor 

🗣️ Spain is going to develop an open-source large language model trained in Spanish, Basque, Catalan, Galician and Valencian, which startup founders say could help them win big in the Latin American market.

• The LLM will be developed as a public-private partnership between the Barcelona Supercomputer Center (BSC), the Spanish Supercomputing Network comprising 12 of these ultrafast machines, the Royal Spanish Academy and the Association of Spanish Language Academies — which work to protect the integrity of the Spanish language across the world.
• Albert Cañigueral, tech transfer director for AI and language technology projects at BSC, hopes the LLM will be equivalent to OpenAI’s GPT-3 model and will be released by the summer, assuming the centre’s MareNostrum 5, one of the world’s 10 supercomputers, comes into operation as planned this spring. The announcement was made at the 4YFN event in Barcelona.
• Elsewhere at the event, Graphcore’s CEO Nigel Toon criticised the UK government for “dragging its heels'' on regulating against some negative societal impacts of AI like deepfakes, which he argued “should probably be against the law.” Toon also promoted his new book 'How AI Thinks', but didn’t reveal any juicy details regarding reported talks with potential buyers for his company.
• Glovo’s CEO and cofounder Oscar Pierre told the same event if he had to build the company from scratch again he would be much more aware of the downsides of growing too fast, and would not announce any fundraisings, arguing everybody in the team “pushes a bit less” when they know there’s a lot of money in the bank.

🤳 Alternative social media app Lapse has raised a $30m Series A led by DST Global Partners and US-based Greylock. The London-based company is among a wave of social media startups claiming to offer a more candid experience. Its photo-sharing platform is inspired by the disposable camera and photos are only available hours after being taken, which can be shared with a small group of friends. 

• Naveen Gavini, former chief product officer at Pinterest, and Nima Khajehnouri, former VP of Engineering at Snap Inc, also participated in the round. 

📸 Paris-based GenAI startup Photoroom — whose photo-editing platform was used to promote Taylor Swift’s latest album and the Barbie movie — has bagged a $43m Series B that brings the company’s valuation to about $500m. 

• The YC alum has created an AI-powered tool that can remove and replace photo backgrounds, and which has already found significant traction among small businesses. 
• It has had 150m downloads in just four years and subscriptions are generating €50m in annual recurring revenue, making the startup profitable.

🎓 Northern Gritstone, the investment company focused on spinouts from the universities of Leeds, Manchester and Sheffield, is launching an accelerator in partnership with Deeptech Labs to create more deeptech startups in the north of England. They will work closely with the three universities to identify early-stage spinouts to participate in a 10-week programme focused on venture building.

🤔 Fast fashion brand Shein is mulling shifting its IPO from its preferred destination New York to London, because of potential hurdles getting the listing approved by the US regulator, according to Bloomberg. 

🤝 UK tech secretary Michelle Donelan is visiting the United Arab Emirates (UAE) on a two-day trip to discuss deepening ties between the countries for AI development. Discussions will centre around compute capacity, digital skills, R&D and investment.

💰 Did someone say “fintech downturn”? Not Qonto, or so it seems. With 450k customers (a 30% increase compared to 2022) and a turnover that’s seen a big bump thanks to rising interest rates, the business banking company has gotten itself a reputation for being flush with cash — and that could see it embark on a spending spree.

• “Everyone right now knows that Qonto is looking to buy the whole world,” says one fintech founder. The company is in the market for acquisitions and says it is eyeing up deals that could help it expand the range of services it can offer to its customers. 
• But although some argue that the fintech has won the market, it’s not a done deal. Some competitors are closely following in Qonto's footsteps: Pennylane, a French accounting startup that also offers banking services, recently secured €40m in a Series C funding round –– which it intends to use… for M&A. The race is on.

🥐 ‘We’re not trying to build an Andreessen Horowitz-style firm’: Brunch with Point Nine’s Christoph Janz. A partner at one of Germany’s best-known VCs, Janz is a serial founder who skipped uni to found startups and invested with the money he made by selling them. In a rare interview, he sits down with Sifted’s Miriam Partington at Cafe Fleury, a quaint French eatery in trendy Rosenthaler Platz in Berlin. Read the conversation here, as the VC talks building in the software era, why bigger VC firms aren’t always better and moving to the US.

🙌 Fintech kevin raises a $25m bridge round amid layoffs and salary delays. The Lithuanian startup, which raised its $65m Series A from investors such as Accel and Eurazeo in 2022, hadn’t paid salaries to its employees for two months as it battled to secure additional funding from investors, five current and former staffers tell Sifted. The company eventually struck a deal with existing investors to land a $25m bridge round, three employees say. But the money will come under the condition that the company reduces its burn rate and acquires new clients — as a result, it’s had to make “brutal” redundancies.

• The current and former employees tell Sifted they’re disheartened about how the company mishandled the situation — and point at a lack of transparency and communication from management.
• Sifted has reached out to Kevin and all its VC investors for comment but hasn’t received a response. 

👶 I raised £650k as a first-time founder — here’s how I did it.

🪩 The VC betting on the future of nightlife — and the startups doing it (Sponsored by Best Nights VC)

🤖 The role of AI in cybersecurity (Sponsored by Vention)

🇬🇧 How UK regulators are missing a chance to make the best of Brexit (FT)

💸 On March 13, Amy Lewin will bring together a panel of experts from Octopus Ventures, FaceIt, Latham & Watkins and Bloom to discuss what's in store for M&A activity and how startups can prepare. RSVP.

🇸🇪 On March 14, Mimi will be hosting Sifted’s first intimate breakfast meetup in Stockholm alongside Magnus Nilsson, cofounder of iZettle, to discuss the experience and challenges of selling his company. Be part of the discussion — apply to join.

Cologne, Germany-based Sunhat, which is a startup helping companies gather sustainability data, raised €5m in extended seed funding from investors including EnBW New Ventures, Capnamic Ventures, WEPA Ventures and xdeck.

Zurich, Switzerland-based Chiral, which has built an automated robotics machine that integrates nanomaterials into devices and onto chips, raised $3.8m in funding. Founderful and HCVC led the round and were joined by investors including ETH Zurich and Venture Kick.

London-based KIT-AR, an AR startup aiming to enhance workflows on the manufacturing floor, raised €3.3m in funding. 3XP Global and Blue Crow Capital led the round and were joined by investors including Sintef Venture V, Criteria Venture Tech and Armilar Venture Partners.

Manchester, UK-based ESProfiler, a cybersecurity startup that helps CISOs see the return they get on different security investments, raised €3.2m in seed funding. Nauta Capital led the round.

London-based Yurtle, a platform for caregivers to receive support, raised £1.37m in seed funding. Insurtech Gateway and Mustard Seed Maze led the round.

London-based KLIQ, a no-code platform for creators and solopreneurs, raised $1.5m in seed funding. Serena Ventures led the round. 

Paris-based PlayMakers, a platform for game developers to add user-generated content to their games, raised $1.5m in pre-seed funding from investors including RockawayX.

If you’d like to submit a deal, get in touch. 

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